Current Quarterly Earnings Per Share: How Much Is Enough?

What did shares of the above-mentioned microwave component manufacturer, hospital  perator, and oil Service Company have in common?
From 1977 to 1981, they all posted price run-ups surpassing 900%. In scrutinizing these and other past stock market superstars, I've found a number of other similarities äs well. For example, tradiiig volume in these sensational winners swelled substantially before their giant price moves began. The winning Stocks also tended to shuffle around in price consolidation periods for a few months before they broke out and soared. But one key variable stood out from all the rest in importance: the profits of nearly every outstanding stock were booming.

The common Stocks you select for purchase should show a major percentage increase in the current quarterly earnings per share (the most recently reported quarter) when compared to the prior year's same quarter.


Earnings per share are calculated by dividing a company's total aftertax profits by the company's number of common shares outstanding. The percentage increase in earnings per share is the single most important aren't misled by comparing current earnings to nearly nonexistent earnings for the year earlier quarter, like 1 cent a share.

Ten cents per share versus one cent may be a 900% increase, but it is definitely distorted and not as meaningful as $1 versus $.50. The 100% increase of $1 versus $.50 is not overstated by comparison to an unusually low number in the year ago quarter.

I am continually amazed at how many professional pension fund managers, as well as individual investors, buy common stocks with the current reported quarter's earnings flat (no change), or even worse, down. There is absolutely no reason for a stock to go anywhere if the current earnings are poor.

Even if the present quarter's earnings are up 5% to 10%, that is simply not enough of an improvement to fuel any significant upward price movement in a stock. It is also easier for a corporation currently showing a mere increase of 7% or 8% to suddenly report lower earnings the next quarter. element in stock selection today. The greater the percentage of increase, the better, äs long äs you